Tag: Northwestern University

District Court Declines to Dismiss 401(k) Fee Litigation Case in First Decision Post-Hughes

In the first decision since the Supreme Court’s ruling in Hughes v. Northwestern Univ., No. 19-1401, 595 U.S. ___ (U.S. Jan. 24, 2022) (discussed further here), a Georgia federal district court held in favor of plaintiffs and declined to dismiss allegations that defendant’s 401(k) plan included costly and underperforming funds and charged excessive recordkeeping fees. Specifically, plaintiffs alleged that defendants breached ERISA’s fiduciary duty of prudence by: (1) offering retail share class mutual funds despite the availability of identical lower-cost institutional share classes of these same funds; (2) including actively managed mutual funds which were more expensive than available passively managed funds; (3) selecting and maintaining underperforming funds; and (4) overpaying for recordkeeping services.

In declining to dismiss plaintiffs’ investment management fee claims, the district court relied heavily on Hughes. The court expressed its view that Hughes “suggested” that a defined contribution plan participant may state a prudence claim by merely alleging that the plan offered higher priced retail class mutual funds instead of available identical lower-cost institutional class funds. The district court also rejected defendant’s argument that plaintiffs’ claims should be dismissed in part because the plan offered a variety of investment options that participants could select, including lower-cost passive investment options. The district court explained that Hughes rejected this exact argument in holding that a fiduciary’s decisions are not insulated merely by giving participants choice over their investments and that fiduciaries have a continuing duty to monitor plan investments.

The court declined to dismiss plaintiffs’ recordkeeping claims because plaintiffs plausibly alleged that the plan paid nearly double the fees charged by similarly sized plans and that defendant failed to monitor those costs. In regards to plaintiffs’ underperformance claims, the court held that the existence and extent of the alleged underperformance was better left for summary judgment given the parties’ differing views on the issue.

Proskauer’s Perspective

While plaintiffs seemingly scored a victory in the first decision since Hughes, the decision does not indicate that this will (or should be) the trend. First, the district court issued its decision one day after Hughes was decided without the benefit of additional briefing, which would have likely included briefing on the Supreme Court’s direction that district courts give “due regard” to the reasons why a fiduciary made the challenged decisions. Second, the district court appears to have, at a minimum, over-emphasized the Supreme Court’s holding as to the plausibility of mutual fund retail share class claims; the Supreme Court did not hold directly or in dicta that a plaintiff may survive dismissal merely by alleging the availability of identical lower-cost mutual fund share classes.

The case is Goodman v. Columbus Reg’l Healthcare Sys., 2022 U.S. Dist. LEXIS 13489 (M.D. Ga. Jan. 25, 2022).

© 2022 Proskauer Rose LLP.
For more articles about 401(k) plans, visit the NLR Labor & Employment section.

NLRB Calls Out Punt Team and Declines Jurisdiction Over Northwestern University Football Players

In a mild surprise given the current constitution of the Board (read – majority appointed by President Obama), the NLRB declined to assert jurisdiction in ruling on the petition of Northwestern University’s scholarship football players to unionize.  However, in a display of special teams not seen on a football field in Evanston, Illinois since the days of John Kidd, the NLRB reached its decision without determining if scholarship players were “employees” under the National Labor Relations Act.  Even with this limitation, it is clear competitive balance considerations for NCAA Division I sports has received great deference as a policy matter in a legal dispute.

I will not take this opportunity to point out my initial forecast that the NLRB would find this case extremely unique for its jurisdiction and the original decision by the Chicago NLRB regional office would be reassessed given the potential effect on permissible amateurism.  Not doing it.  It is sufficient to note this decision affirms the desire of the NLRB to see the student-athlete/employee question answered by Congress and/or the NCAA member institutions, although not necessarily in that order.

A fair question in reading the Board’s decision is whether the same result would have occurred if the “Power 5” conferences had not recently enacted measure to provide athletic aid for the full cost of attendance and extra benefits for scholarship athletes.  Since Northwestern University, as a member of the Big Ten, is subject to these new rules, it provided a floor for the enhancement of student-athlete benefits.  The Board noted this enhancement, even though it occurred after the scholarship football players filed their petition and there is no indication it would have been sufficient for collective bargaining purposes.

As the National Labor Relations Act does not cover public employees, it is important to remember the majority of Division I student-athletes participating in revenue-generating sports attend state universities.  The ability of public employees to organize for collective bargaining is governed by state law.  While the NLRB’s decision notes that Ohio and Michigan have recently enacted legislation which precludes union organization by student-athletes of their state universities (putting those perpetual lovebirds, the University of Michigan and The Ohio State University in the same basket), keep an eye on states like Connecticut and Pennsylvania which have recently considered legislation that goes the opposite direction to explicitly provide student-athletes the status of employees for purposes of collective bargaining.

Since this legal issue is by no means resolved, private NCAA institutions are still advised to make sure that NCAA and university-sponsored rules which govern practice time, academic advice and progress, athletic-related activities, and student-athlete wellness are monitored for compliance.  As a best practice, institutions should consider third-party compliance audits which not only uncover hidden legal vulnerabilities, but also are helpful in defusing the concerns which could lead to an organizational effort by the football or basketball team.

ARTICLE BY Tyrone P. Thomas of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

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Northwestern Scholarship Football Players Found to be Employees Eligible for Union Representation

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Peter Sung Ohr, the Regional Director for Region 13 of the National Labor Relations Board issued a Decision and Direction of Election pertaining to the effort of the Northwestern University football players to unionize. The Regional Director found that scholarship football players at Northwestern University are “employees” within the meaning of the National Labor Relations Act and eligible for union representation. The Regional Director found appropriate a bargaining unit composed of “all football players receiving a grant-in-aid football scholarship and not having exhausted their playing eligibility.”

The Regional Director used the common law definition of employee in reaching his decision. Under the common law test, a person is an employee if he performs a service for another, under a contract of hire, for compensation, and is subject to the other’s right of control. He found the following:

  • The scholarship football players perform a service (playing football) for compensation (a scholarship)
  • The scholarship players’ commitments to play football in exchange for the scholarship constitutes a contract for hire
  • The scholarship players are under the control of the University for the entire year, including in-season and out-of-season workouts, restrictions on their entire personal life and detailed regulations players must follow at the risk of losing their scholarship

The Regional Director decided the NLRB’s 2004 Brown University decision, in which the NLRB found graduate assistants not to be employees of the university, to be inapplicable here because playing football is not part of the players’ academic degree program. However, he wrote that even if the Brown University test was applied, the scholarship football players would be found to be employees. He noted:

  • The scholarship players are not primarily students due to the 50-60 hours a week during the season that they devote to football
  • The scholarship players’ football “duties” do not constitute a part of their academic degree requirements
  • The academic faculty does not supervise the players’ football duties; rather, coaches who are not part of the faculty do so
  • The grant-in-aid football scholarship is not need-based like the financial aid other students receive but is given solely in exchange for playing football

The Regional Director rejected two additional arguments made by the University:

  • He decided the scholarship football players are not “temporary employees” (who are generally ineligible to participate in collective bargaining) because they work more than 40 hours a week during the season, work year round, expect to work for 4-5 years and play football as their prime consideration
  • He did not include the “walk-on” players in the bargaining unit. He found that they are not employees within the meaning of the NLRA because they do not receive a scholarship and are not subject to the conditions for its receipt

The University now has until April 9, 2014 to file a Request for Review to appeal the Regional Director’s ruling to the NLRB in Washington, D.C.

Article By:

Gregg E. Clifton
Paul V. Kelly
Of: 
Jackson Lewis P.C.